Keep IRS auditors away: earn less than $200,000

In the Decembeer 22, 2009 article "Keep IRS auditors away: earn less than $200,000," Associated Press writer Larry Margasak reports the Internal Revenue Service (IRS) seldom audits tax returns of individuals earning less than $200,000 per year.

WASHINGTON – Want to keep IRS auditors away? Keep your earnings under $200,000 and they won't bother you 99 percent of the time.

IRS enforcement numbers, released Tuesday, show that returns under that amount have a 1 percent chance of getting audited.

Returns showing income of $200,000 and above have a nearly 3 percent audit chance. The percentage jumps to more than 6 percent for returns showing earnings of $1 million or more.

The percentages apply to both individual and joint returns.

The number of audits jumped 11 percent from 2008 to 2009 for returns with earnings of $200,000 or more, but rose 30 percent for returns showing earnings of $1 million or more. For those under $200,000 the number of audits remained steady.

The IRS conducted 1.4 million audits of individual returns in the financial year ended Sept. 30, with more than 1 million conducted through correspondence with the taxpayer. The others were conducted through face-to-face meetings with IRS auditors.

The IRS does not do random audits, but does conduct "research audits" that will test compliance in business tax categories. In 2010, the target will be payroll taxes, according to Steve Miller, deputy commissioner for enforcement.

What happens if you're audited while unemployed? The IRS may give you a break.

"While our assessments were up, the ability to pay went down drastically" due to the economy, Miller said. "We have a series of tools. We can have them pay partially, over time. If the money is not collectible, it's treated as non-collectible. It's going to depend on each case.

"We have to ensure there's a balance between our responsibility to collect taxes with economic realities. We give people more time and determine how fast they can pay and whether they can pay."

The total revenue collected from IRS enforcement actions, $48.9 billion in 2009, is a drop from $56.4 billion in 2008 and $59.2 billion in 2007.

Miller said the higher numbers in 2007 and 2008 reflect collections from settlements of several major tax shelter cases.

The IRS has stepped up its examination of tax-exempt organizations, checking the books of more than 10,000 groups in 2009 compared to 7,800 the previous year.

The number of business tax returns examined was down slightly in 2009 from the previous year.

The Efficiency of a Tax System – the Administrative Burden

The Efficiency of a Tax System – the Administrative Burden

Some tax systems are also criticized because of their administrative burden. Individual income taxes, for example, place a large administrative burden on the government, businesses, and individuals. The Internal Revenue Service (IRS) of the United States uses many economic resources to collect taxes and enforce the tax laws. Each American business must devote resources to the calculation of payroll taxes for each worker, the submission of these taxes to the government, and extensive record keeping. Individuals in the United States also devote time and resources to record keeping, tax preparation assistance, and seeking ways to minimize their tax burden. If the United States had a simpler individual income tax structure, Americans might be able to spend less time and money on tax preparation. They might then spend this time and money on things that are more productive and provide a higher standard of living or quality of life. Taxes with a relatively high administrative burden are less efficient than those with a relatively low administrative burden.

In 1997, the Congressional majority leader Richard K. Armey, a Republican from Texas, announced that Americans spend 5.4 billion hours a year preparing income tax returns at a total cost of $200 billion, or $700 for every man, woman and child. During his 18 years in Congress, Rep. Armey was a strong advocate for tax reform.